Some thoughts on the Budget

Rarely has the task of delivering a Budget been such an inconvenience to a Chancellor. Mr Darling had precious little to crow about and very little room for manoeuvre. This was a political Budget, with all the major fiscal and economic decisions made or incapable of being made so close to the looming Election. The Chancellor's speech was pedestrian and dull until mention was made of a new tax information exchange agreement with Belize. Laughter and cheering ensued at this point; I wonder why? Mr Cameron's reply was impressive. Most telling was his criticism of Labour for introducing measures which his party had initially proposed and which ministers had derided. If the Government still has any fresh ideas about how to lift the country out of recession, they were by no means obvious from this Budget.

Most of the tax changes mentioned in the Press Releases are either unsurprising or largely insignificant. The following caught my eye:

SDLT

For first time buyers, there is a temporary incentive to buy; incentives have not been common in recent budgets. However, there is a return to usual form for the buyer of £1 million+ properties - a disincentive to delay their purchases in the face of a swingeing increase in SDLT from 2011 onwards.

Offshore penalties

The keys to sophisticated offshore tax evasion are secrecy and non-disclosure. The fact that HMRC has been prepared to pay for information which has been obtained criminally is a strong indication of its determination to tackle this issue. The introduction of a higher tariff of penalties for offshore evasion structures which use tax havens with which the UK does not have tax information exchange agreements is clearly part of the overall effort to stamp out this kind of evasion but what will it actually achieve? Offshore structures are used frequently for investment and trading by non-UK residents and for legitimate tax avoidance. This fact often serves to give a veneer of legitimacy to structures which are frankly nothing more than heavily disguised evasion. Will the tax havens which have information exchange agreements be more or less likely to be used by legitimate avoiders or illegitimate evaders? A recurring problem with HMRC is their frequent inability to differentiate between the two groups.

Disclosure of avoidance schemes

HMRC are clearly still not happy with the scope of the DOTAS regulations and will be increasing penalties for non-compliance as well as revising and extending the “hallmarks” that identify the type of scheme covered by them. What constitutes avoidance is often a nebulous concept; HMRC moves the goalposts but is frustrated when the imaginative avoider still manages to put the ball in the net. HMRC's view of what constitutes unacceptable avoidance is much wider than the tax profession's. At the risk of torturing an analogy to death, one could say that they have recently begun to ask the referees, in the shape of the Courts, to disallow past goals on the basis that the goalposts were not actually where everybody thought HMRC had said they had put them. Thankfully, the Courts are there to provide a measure of sanity, but not before HMRC have rattled sabres, run up huge costs and cowed the vast majority into silent compliance.

Overall, this was a dull and uneventful Budget. But without doubt, it marked the beginning of an election campaign which promises to be neither dull nor uneventful.